How do you know when it’s time to quit?

Here is an interesting column from our correspondent in Arizona: T. Paul Thomas, business professor at Northern Arizona University.

This month I am touching on knowing when is it time to shut down the business, part ways with an employee (or partner) or just move on yourself.

“I knew from day one something wasn’t right”

Listen to your gut. And it will tell you a lot. A CEO I work with has four different businesses. In the industry he operates he is a “golden child”. Everything he touches turns to gold. Three of the four businesses have had tremendous growth, increasing margins, low turnover and viewed by everyone as successful. And they are indeed successful.

Three years ago he started the fourth business using his same formula for success. Everything started out fine but six months into it, he started to worry. At 24 months we sat down and started asking the tough questions; was it time to pull the plug? How would it impact the other businesses? What about the employees? What about his reputation? He decided it wasn’t time.

Last month marked the three-year anniversary of the business. After hemorrhaging literally hundreds of thousands of dollars and causing countless sleepless night he finally decided it was time to call it quit. In a matter of 48 hours he shut the business down.

We talked as he was locking the door for the last time and I asked him how he felt. He responded, “I knew from day one something wasn’t right”.

The lesson here is to trust your gut. When you have a track record of successes you quickly learn the formula for success. For at least 30 of the 36 months he knew it wasn’t working but tried to stay optimistic that prosperity was just around the corner. It wasn’t. Trust your gut and cut your losses sooner than later.

Change the strategy, or shut it down

 Two weeks ago I met with a founder and CEO of a really interesting start-up. Technically it is four years old but it still feels like a start-up.

“Julie” created an interesting application based on her passion and a real need that exists in her world. She has 5,000 non-paying users of the app and was asking what she should do.

I asked her a simple question, “If we met four years ago and I told you in four years you will have 5,000 non-paying users would you still have spent four years on the app”. I don’t know the right answer to the question, only the founder does.

I once knew of a founder that would shut down his start-up if he wasn’t seeing 250% annual growth. That might seem silly but for him his philosophy was, “Life is short and I want nothing but home-runs”. Maybe 5,000 was a good number for “Julie” or maybe she would have viewed it as failing. (For those not familiar with successful app data, you need to have 1 million users and a high percentage need to be active to have a successful app).

My advice to “Julie” was to consider a different strategy (or niche market) or just shut it down, and move on to the next idea. While I’m not a big fan of Business Plans, at a minimum you need to define what success is and a time frame for it. If you miss the goals look closely to see if they can be corrected. If they can’t consider changing the strategy or shut it down. Life is indeed too short.

“I had the best night of sleep in over a year”

 This last example involves one of my very best friends. Michael holds all the patents to what today is known as Google Earth. Michael joined Google with the sale of the company (then called Keyhole) and quickly started a successful ten year career at Google eventually working directly work the CEO and eventual Chairman.

When Michael decided to leave Google he was offered opportunities at venture capital firms, the largest public and private technology firms and nearly every start-up that heard of his departure.

He decided to join a little known start-up that he was passionate about and had a long history with the founder. After successfully raising millions of dollars in investment and teeing up large corporate contracts the founder decided he should be the CEO and asked Michael to not just step down but to leave.

Michael and I spoke for an hour as he described the events. I could hear the disappointment and hurt in his voice. I suggested he go to the board and simply say, “Its me or it’s the founder, but it can’t be both”. Michael doesn’t do things that way. He believes the right thing will happen in life. He told me he was going to stay engaged because he had committed to the employees (most of which joined because of him) and he knew it was the right thing to do.

Three weeks later Michael called me and said he had finally quit. When I asked how he was doing since leaving he responded, “I had the best night of sleep the night I quit.”

Sometimes all the best intentions in the world aren’t enough. Things don’t always go the way they are suppose to go, so you need to know when it is time to pick up your marbles and go home.

T Paul Thomas teaches business and entrepreneurship at Northern Arizona University, serves as the CEO of the Northern Arizona Leadership Alliance (NALA) and is the Chief Entrepreneur at the NACET Accelerator. Prior to joining NAU 2013 Paul spent 25 years as a serial CEO and President. Paul can be reached at thomas.tpaul@gmail.com